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AMERICAN APPAREL IN TALKS WITH RESTRUCTURING FIRM

— September 08, 2010

American Apparel hopes to work with an outside firm to improve operations and boost finances. Both Reuters and ABC news report that the as yet unnamed firm is in talks with Dov Charney, the controversial founder and CEO of American Apparel, which is based in Los Angeles. Though no formal deal has been struck, Charney is not seeking to declare bankruptcy, only to restructure operations and facilitate a corporate turnaround.

Charney is no stranger to headlines, making news, in the past, for his lascivious ad campaigns, allegations of workplace sexual harassment and progressive social stances. His company, specializing in basic cotton tees and underwear, prides itself on being a “vertically integrated” manufacturer, meaning it avoids outsourcing and controls all aspects of production from design to finished product.

Last month, the chain announced it anticipated defaulting on its loan with UK-based Lion Capital. This would interfere with American Apparel’s $75 million revolving borrowing facility with Bank of America, and could, in turn, cut off the company’s cash flow altogether.

American Apparel’s shares this year are down 66% in addition to a recently filed lawsuit where certain shareholders claim they were intentionally misled as to the company’s financial stability. Meanwhile, the chain was late to file its second-quarter report and, as a result, might face delisting on the American Stock Exchange. When the report was finally submitted, it projected a loss in operations of $5 million to $7 million as opposed to last year’s $7.3 million profit. The company predicts losses will continue through the end of the 2010 third quarter.

However, many experts feel that the company, with Charney holding a controlling 53% stake and billionaire Ron Burkle recently obtaining a 6% hold, is still viable. American Apparel admits, though, that improvement plans may not succeed.